This year has been turned out to be exciting for large startups in India. Right from Swiggy, Zomato, Paytm Mall to Policybazaar, Oyo, Byju’s, Cure.Fit and several others had closed mega financing rounds. Large financing round also catapulted Swiggy, Policybazaar, Byju’s and Oyo into coveted unicorn club.
While achieving the valuation of a billion USD or more was not surprising for the aforementioned firms (who crossed $1 billion valuation in 2018), the making of Udaan, a B2B e-commerce firm is nothing less than a mystery.
Incepted in 2016, the company became the fastest Unicorn in September this year after raising $225 million led by DST Global and Lightspeed Venture Partners. The financing round came as a sheer surprise for media, analyst and those who track B2B segment as there is very little detail public about the Bengaluru-based company.
So, how Udaan took off and what exactly it does?
“Udaan began operation as a logistic platform for buyers and sellers in staple (rice, lentils etc.), electronic and apparels,” said one of the several sources Entrackr spoke with on condition of anonymity. He has been working with the company from the early days.
“The idea was to understand the demand and supply aspects across the aforementioned categories. The company focused only on logistics part for about 8-10 months,” he said.
But, why Udaan started with logistics and how it helped the firm to establish B2B business?
Logistics essentially helped it to foster a relationship with the buying and selling community in B2B space. “For more than a year and a half, Udaan did logistics on subsidised rate and it helped them to gain significant exposure within the community,” said two sources.
“More importantly, logistics allows Udaan to gain insight on who is buying what,” they added. Essentially, the company’s deliberate goal was to build a database of buyer and sellers before getting into supply business.
Around early last year (Feb-March), Udaan began B2B supply business with a handful of buyers and sellers. Within a short span of about 22 months of operations, it has been able to onboard about 1,80,000 sellers and buyers on the platform.
While 80 percent of this is buyers comprising of small-scale retailers, remaining 20 per cent are manufacturers who are selling inventories on Udaan’s platform.
Currently, sources estimate that the platform has been working with manufacturers in about 130 cities and delivering to buyers across 1,000 cities. “Large catalogue coupled with efficient and cheap logistics have made Udaan popular amongst buyers in smaller cities,” added sources.
Besides adding sellers from India, Udaan also has started sourcing manufacturers from China, pointed out the sources. “Recently, it had set up a team in China for sourcing sellers in apparel, smartphones and electronic. It makes a lot of sense for them as a major chunk of supply comes in the aforementioned categories from China,” revealed sources.
So, what’s the revenue model for Udaan?
Probably, making a commission on transactions and charging for logistics. But, that’s not the case. Udaan is gunning a bigger opportunity. It wants to become a lending platform for merchants who are buying at it.
“They don’t intend to make money through logistics and commission at the moment. Udaan funds working capital for its buyers and charge around 15-18 per cent interest on it,” emphasised the sources.
Financing working capital has been a major headache for end retailers. They typically end up borrowing from local lenders who charge exorbitantly. Udaan intends to be a working capital ‘fund’ for them.
So far, it has built a loan book of about Rs 170 to 200 crore and intends to take this up to about Rs 750 crore by the end of the current fiscal year. “About 50 per cent of its Rs 1,593 worth Series B round would go towards lending,” added sources.
“With the combination of a marketplace, logistics, and lending, it turns out that Udaan has been building full stack platform for SMEs. And if it executes well, there is big winning to take home,” said one of the venture capitalists who invested in one of B2B marketplaces.
Despite a lot of actions in B2B lending space, none of the startups has been able to make a bigger dent in the segment. Most of the lending companies focus on facilitating the loan to mid-sized sellers who have a credit history.
None is willing to get into financing small merchants. “Since Udaan knows about the financial health of sellers through transaction history, understand the size of working capital requirement and has the ability to recover, it’s in perfect position to offer loans and collect them without much manpower involvement,” added the above quoted VC.
B2B marketplace segment counts platform such as Indiamart, Power2SME, ShopX, and OfBusiness. However, Udaan has outnumbered them with its fast-paced growth in a short span. With an aggressive expansion plan and full stack approach, if Udaan continues to evolve as a one-stop option for SMEs, it certainly would end up becoming one of the biggest success stories in B2B space.
P.S: Entrackr has tried multiple ways to get in touch with Udaan for interaction over the premise of this story. However, we have been unable to do so. Hence, the story is based on inputs from several credible but anonymous sources.